Contact Us | 1-844-848-6547

12.05.2011 Battle Plans: Patents in the Financial Services Industry


For many years, banks and other financial institutions took an isolationist position with respect to the patent wars occurring “over there” in the technology sector.  Then came software patents.  Then came Internet and business method patents.  Then came the proliferation of the non-practicing entity business model, whereby patent-holding entities would secure patents at low prices, sue unsuspecting defendants and extract payments to further support their business.  The financial services industry fell victim to this practice but has begun to fight back.  This article addresses preventive and proactive approaches available to such entities, which arguably have improved thanks to the recently passed America Invents Act (“Act”).


A Somewhat New and Improved Battlefield for Challenging Frivolous Patents


As most know, the Act harmonizes U.S. patent law with the international community by changing to a “first-to-file” patent system.  In addition, the Act expands the procedures through which the United States Patent and Trademark Office (PTO) can evaluate validity challenges to issued patents, which may pull more of these evaluations away from typically less technology-informed federal courts and juries.  Depending upon when a patent issues and when a validity challenge is filed, third party patent challengers may have different weapons available to them and can benefit from relatively aggressive timetables for learning if the PTO agrees with their invalidity positions.  Certain strings attach, though, as there may be estoppel effects, and certain challenges at the PTO may not be available if the would-be challenger previously has filed a lawsuit challenging the validity of the subject patent.  Nevertheless, this reinvigorated venue for patent challenges may afford potential defendants an earlier and less expensive battlefield to defeat invalid patent claims. 


Further, parties accused of infringing “business method” patents are afforded the option of pursuing the Transitional Program for Covered Business Method Patents (as set forth in § 18 of the Act).  As of September 16, 2012, this transitional program will allow patent challengers to use expansive "post grant review" procedures regardless of whether the business method patent at issue resulted from an application filed under the current “first to invent” system or under the new “first to file” system.  Thus, many business method patents affecting the financial services industry may soon be challenged regardless of when the patents were issued.


Also, while a request for a business method patent review under the Transitional Program does not automatically stay a lawsuit in federal court, the factors that a court is to consider should weigh in favor of stays.  The factors a court must consider are:  (1) whether a stay would simplify issues and streamline trial; (2) whether discovery is complete; (3) whether a stay would unduly prejudice the nonmoving party or provide a clear tactical advantage to the moving party; and (4) whether a stay would reduce the burden of litigation on the parties and the court.  The Act also allows for immediate interlocutory appeal to the Federal Circuit of a district court’s decision on the stay.  The Transitional Program is designed to be temporary.  Unless extended by Congress, petitions under the Program must be filed within eight years after enactment, or September 16, 2020.


Patent litigation is slow and expensive.  By expanding the power to revise or nullify “junk” patents in the PTO, the Act allows proactive defendants to go on the offensive and lessen the potential burdens and costs of defending themselves from non-practicing entity (a.k.a., “troll”) lawsuits.  In addition, the Act empowers outside parties with a longer and better opportunity to submit prior art against claims of pending applications.  As such, diligent companies with knowledge of relevant prior art can submit and comment upon the relevance of the prior art against competitor patent applications, in an effort to defeat pending claims before they are issued.


A Fairer Fight:  Jurisdiction and Joinder


Another section of the Act properly requires one-on-one litigation, rather than consolidating defendants together in the same action.  Section 19 of the Act limits the ability of plaintiffs to join multiple defendants in infringement actions.  This Section is effective immediately and has been applied to patent cases filed on or after the date of enactment.  Joinder is no longer permitted simply on the basis that defendants infringed the same patent(s).  Rather, accused infringers may be joined in one action “only if” there is an allegation of joint and several liability or that the infringement arises out of the same transaction or occurrence and common questions of fact.  Although the Act codifies Federal Rule of Civil Procedure 20, it goes further by specifying that accused infringers “may not” be joined in one action based solely on allegations that they infringed the patent(s) at issue.


As a result, patent trolls have to sue defendants in separate individual cases and then seek to consolidate the cases before trial.  The new joinder rule should therefore give defendants new weapons in their arsenal, including a greater chance of sustaining motions to sever and to transfer venue.  Of particular benefit to banks, the Act provides that an automated teller machine can no longer be deemed to be a regular and established place of business to establish venue against the bank that owns the machine.


Cry Havoc and Let Slip the Financial Patent Warriors


To enact an effective battle plan, businesses in the financial services industry are also expanding their own patent portfolios.  In just ten years, the number of patents in Class 705 (business data processing) and the number of patents awarded to companies in this industry have exploded.  Slowly but surely, the financial services industry is awakening to the trend of their technology brethren and watching as companies such as Apple, Google, Microsoft, RIM and others acquire thousands of patents as a deterrent to patent trolls or competitors who may sue them for infringement.


In sum, the Act favors the prepared financial services company.  A diligent company in this field is not only rewarded for promptly seeking to protect its novel ideas, but has increased defenses available at the PTO, and can further monitor its competitors’ patent activities and consider appropriate counter-measures to potentially nip patent problems in their early stages.


For more information about this topic, please contact Thomas F. Bergert, 434.951.5710 or , Robert C. Van Arnam, 919.981.4055 or , or any member of the firm’s Intellectual Property Team.


F.R.E. E-News is a  quarterly publication produced by the attorneys in Williams Mullen's Financial Services & Real Estate Section and the Financial Services Industry Service Group.


Editorial inquiries should be directed to John M. Mercer, 804.420.6443, or Matthew E. Cheek, 804.420.6923,  This information is provided as an educational service and is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.  

Contact Us | 1-844-848-6547